Global Economics

The End of China's One-Child Policy?

Molly Zhang, a 31-year-old account manager in the lighting industry, just had her second son. Now she has to pay a fine likely to total 30,000 yuan ($4,760), roughly equal to her annual salary, for violating China’s one-child policy. “Even for an average white-collar worker in Dongguan, this is a lot of money. But I didn’t want to have just one child,” says Zhang, adding that paying the penalty is necessary to get her child a household registration document, without which education and employment would be impossible.

Last year’s publication of China’s 2010 census, which revealed a much more pronounced decline in births than previously estimated, galvanized 20 or so of China’s top demographers, sociologists, and economists to advocate ending the one-child policy. “It is time to think about removing this policy decided 30 years ago—China’s situation has changed so much,” says Gu Baochang, a demographer at Renmin University of China in Beijing and one of the informal leaders of the group, which has twice submitted petitions to China’s top leaders urging them to reform or end the policy.

The latest salvo was the April 16 publication of a book by James Liang, chairman of online tourism company Ctrip.com (CTRP), China’s version of Expedia (EXPE). The title: Too Many People in China? Three publishers refused to print the book, citing the topic’s sensitivity, Liang says. His thesis is that the demographic changes wrought by the one-child policy will challenge Beijing’s goal of moving from being the factory to the world to a more innovative economy.​ A rapidly aging workforce will stifle creativity within companies, argues Liang, who looked at the experience of enterprises in more than 60 countries for his book and who earned his doctorate in economics at Stanford University. “In pretty much every country, developing and developed, you see that the older the age of the workforce, the lower the overall entrepreneurship,” says Liang, citing Japan as the classic example.

Since it was put into place in 1979, China’s one-child policy has had strong official backing. The National Population and Family Planning Commission, which employs about half a million people, says its efforts have averted a population surge that would have added 400 million Chinese to a population of 1.34 billion and strained the country’s scarce resources. That claim is widely supported by China’s top leaders, who as recently as April 10 reiterated their intention to keep birthrates low. “The mindset for many Chinese policy makers, including a large share of the public, is still back like it was 30 to 40 years ago,” says Wang Feng, senior fellow and director at the Brookings-Tsinghua Center for Public Policy at Tsinghua University in Beijing. “The belief is that the Chinese people like to have many children, and that unless the government does something extraordinary to deal with that, China will be doomed by a population explosion.”

Those attitudes date to the period just after China’s Cultural Revolution ended in 1976, when the economy suffered huge shortages and food rationing was common. The demographic results of the one-child policy have been dramatic. In 1966 the average Chinese couple had about six children. Birthrates have dropped to around 1.5 children now, which means China’s population will likely peak at 1.4 billion people before 2030. Couples in the U.S. average roughly two children.

To date, China has enjoyed what economists call the “demographic dividend,” with a growing labor force contributing about 0.9 percent to annual economic growth, according to World Bank estimates. That dividend will disappear when the working-age population peaks at 1 billion, then starts to shrink, in 2013. While China today has some 120 million people aged 20 to 24, that’s expected to drop more than 20 percent in the next decade, according to the United Nations Department of Economic and Social Affairs.

Labor shortages have emerged earliest in the Pearl River Delta, in large part because export factories have relied on workers under the age of 25. In coming years the labor force will grow older. “The problem is employing those older workers, who are mushrooming in size, and yet have much less human capital [such as higher education levels and general good health] to offer the employers,” says Judith Banister, a leading China demographer who formerly was director of global demographics at economic researcher the Conference Board. While the U.S. and Europe took about 100 years to become aging societies, in China it has taken less than 40 years. “For the first time we are seeing a country getting old before it has gotten rich,” says Philip O’Keefe, human development sector coordinator at the World Bank in Beijing.

So far, China’s officials have taken only small steps to loosen the policy. China’s ethnic minority groups have long been allowed to have multiple children. Farmers whose first child is a girl have been allowed to have a second baby. And now most provinces allow couples who are themselves from single-child families to have a second child. Still, about two-thirds of Chinese people fall under the restriction, estimates Renmin University’s Gu. Says demographer Banister: “You try to get away with a child outside the plan, and all of a sudden the powers that be come and fine you or put so much pressure on you that you have an abortion.”

The planning commission has decided to stop using the most threatening slogans aimed at scaring people into compliance. The People’s Daily reported in February that China will no longer broadcast the vow that “We would rather scrape your womb than allow you to have a second child!” Instead it will substitute softer messages, including, “Elderly people from one-child families can get allowances after they are 60 years old!”

Meanwhile, demographers such as Gu and Wang concede that China will never reverse the aging trend. That’s because the fall in fertility is now also due to the drop in childbearing typically seen in countries as they become wealthier and better educated. Still, they argue that keeping the one-child policy is only exacerbating the problem. “There has been a serious under-appreciation of the profound, tectonic change in China’s population that is now occurring,” says Wang. “China is on a demographic downhill. And instead of stepping on the brakes, the current government is continuing to step on the gas pedal.”